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Tax Incentives and House Price Volatility in the Euro Area: Theory and Evidence

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  • Paul van den Noord

Abstract

A problem associated with inflation differentials in monetary unions is that the “crowding-in” effect of lower real interest rates associated with high inflation will initially outweigh the loss of competitiveness (crowding out). The crowding-in effect may produce volatility in house prices, especially if tax regimes favour the occurrence of bubbles. This paper shows that this is the case notably in the smaller countries of the euro area, and this could explain the persistence of inflation differentials in the area to some extent.

Suggested Citation

  • Paul van den Noord, 2005. "Tax Incentives and House Price Volatility in the Euro Area: Theory and Evidence," Economie Internationale, CEPII research center, issue 101, pages 29-45.
    • Handle: RePEc:cii:cepiei:2005-1qb
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    File URL: http://www.cepii.fr/IE/rev101/rev101b.htm
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    Keywords

    Tax and budget policy; EMU;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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